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Scoop Up These 4 Stocks From the Promising Miscellaneous Retail Industry
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Measures undertaken to support households coupled with the resumption of economic activities post the coronavirus lockdown have acted as tailwinds for the Zacks Retail – Miscellaneous industry. To make the most of the scenario, retailers have been focusing on superior product strategy, advancement of omni-channel capabilities and making prudent capital investments to resonate well with resurrection in consumer demand.
Undoubtedly, Five Below, Inc. (FIVE - Free Report) , DICK'S Sporting Goods, Inc. (DKS - Free Report) , The ODP Corporation (ODP - Free Report) and MarineMax, Inc. (HZO - Free Report) look well poised to cash in on the opportunities, courtesy of strategic review of their business operating model, growth prospects and cost structure.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies, and specialty products, distributors of beauty products, and sellers of a wide range of domestic merchandise. Some of the industry participants operate rural lifestyle retail stores, arts and crafts specialty outlets, and even provide used car auctions and salvage auction services.
4 Trends Likely to Define the Retail – Miscellaneous Industry’s Future
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. No doubt, a reviving U.S. economy, a buoyant stock market, record personal savings, fresh initiative for a new coronavirus-aid package and positive news on the vaccine front are likely to drive consumer spending. U.S. retail sales grew for the sixth straight month in October, in spite of the fading of initial coronavirus-relief package. Analysts believe that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, and redirecting the same to retail. However, some market pundits cautioned that resurgence of coronavirus cases are compelling a few states to impose new restrictions. This could derail consumer spending activity. Notwithstanding the same, industry experts cited that companies have been resorting to location analytics and other data-driven tools to better engage with customers amid the ongoing crisis.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omni-channel operations, coming up with reward programs, and developing innovative products and services are worthy of mention. Of late, there has been an increase in demand for office supplies, personal care items, domestic merchandise products and fitness-related products, among others. Industry experts pointed that with people largely staying at home and maintaining social distancing, they are converting homes into “staycation spots” and engaging in “solitary recreational activities.” Notably, the companies are looking to fuel sales via targeted marketing.
Digitization Key to Growth: With the change in consumer shopping pattern and behavior, industry participants such as Tractor Supply Company (TSCO - Free Report) and Ulta Beauty, Inc. (ULTA - Free Report) have been playing dual in-store and online roles. In this respect, the industry players have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon amid the pandemic. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Markedly, the outbreak has rapidly changed the convenience of digitization into a necessity, and companies have been taking every step to capitalize on that demand. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers need to replenish shelves with in-demand merchandise and ramp up investments in digitization this holiday season.
Focus on Margins: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. They have been accelerating investments to strengthen digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. That said, sustained cost-containment measures are necessary to manage margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #37, which places it in the top 15% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident on this group’s earnings growth potential. Since the beginning of July, the industry’s earnings estimate for 2020 has improved 70.6%. Notably, earnings estimates for 2021 have moved up 17.9% during the aforementioned period.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Vs Broader Market
The Zacks Retail – Miscellaneous industry has underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has gained 12% over this period compared with the S&P 500’s rise of 18.1%. Meanwhile, the broader sector has rallied 40.8% in the said time frame.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 17.43X compared with the S&P 500’s 22.85X and the sector’s 30.88X.
Over the last five years, the industry has traded as high as 24.2X, as low as 11.54X and at the median of 15.97X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail – Miscellaneous Stocks to Keep a Close Eye On
MarineMax: The company’s strategic investments in high-margin businesses such as finance, insurance, brokerage, marina and service operations bode well. Markedly, the acquisitions of Northrop & Johnson in July this year and Fraser Yachts last year strengthened its position in the superyacht category. Recently, the company announced the acquisition of SkipperBud’s and its affiliate, Silver Seas Yachts. The buyout meaningfully enhances MarineMax’s presence in the Great Lakes region and the West Coast of the United States. Impressively, this recreational boat and yacht retailer has a trailing four-quarter earnings surprise of 263.6%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up by 57.6% in the past 60 days. We also note that shares of this Zacks Rank #1 (Strong Buy) company have surged 49.9% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HZO
The ODP Corporation: ODP Corporation commenced a multiyear restructuring plan “Maximize B2B” in May 2020 with the objective to realign the company’s operational focus to support its "business-to-business" solutions and IT services business units and improve costs. Through this initiative the company intends to accelerate growth on its B2B platform, lower dependency on its retail consumer operations, and maximize cost savings. Management expects this restructuring plan to be completed by the end of 2023. For this provider of business services and supplies, products, and technology solutions, the Zacks Consensus Estimate for its current-fiscal EPS has risen 31.1% over the past 30 days. The company has a trailing four-quarter earnings surprise of 3.1%, on average, and an estimated long-term earnings growth rate of 6.8%. We also note that shares of this Zacks Rank #1 company have increased 5.9% in the past six months.
Price and Consensus: ODP
DICK'S Sporting Goods: Favorable customer demand, a solid product portfolio and strength in the online platform have been contributing to the company’s upbeat performance. The company has been witnessing significant growth across its core categories, including hardlines, apparel and footwear. Notably, the company has been undertaking technology enhancements to provide customers seamless omni-channel experience. During the third quarter of fiscal 2020, e-commerce sales surged 95%, while as a percentage of total net sales, the same increased to 21% compared with 13% last year. Impressively, shares of this sporting goods retailer have gained approximately 47.6% in the past six months. The Zacks Consensus Estimate for the company’s current-fiscal EPS has moved up 46.9% in the past 30 days. This Zacks Rank #1 company has an estimated long-term earnings growth rate of 5.6%.
Price and Consensus: DKS
Five Below: The company’s digital strategy, expansion of supply chain network, enhancement of overall distribution capabilities and focus on merchandise assortment bode well. This specialty value retailer has been effectively meeting customer demand for products relevant in this pandemic-hit environment. Moreover, to make shopping convenient, it has expanded checkout capabilities. Markedly, the company is now offering same-day delivery service in roughly 300 stores. The company has a trailing four-quarter earnings surprise of 46.9%, on average, and an estimated long-term earnings growth rate of 21%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up by 8.6% in the past seven days. We also note that shares of this Zacks Rank #2 (Buy) company have surged 45.2% in the past six months.
Price and Consensus: FIVE
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Image: Bigstock
Scoop Up These 4 Stocks From the Promising Miscellaneous Retail Industry
Measures undertaken to support households coupled with the resumption of economic activities post the coronavirus lockdown have acted as tailwinds for the Zacks Retail – Miscellaneous industry. To make the most of the scenario, retailers have been focusing on superior product strategy, advancement of omni-channel capabilities and making prudent capital investments to resonate well with resurrection in consumer demand.
Undoubtedly, Five Below, Inc. (FIVE - Free Report) , DICK'S Sporting Goods, Inc. (DKS - Free Report) , The ODP Corporation (ODP - Free Report) and MarineMax, Inc. (HZO - Free Report) look well poised to cash in on the opportunities, courtesy of strategic review of their business operating model, growth prospects and cost structure.
About the Industry
The Zacks Retail – Miscellaneous industry covers retailers of sporting goods, office supplies, and specialty products, distributors of beauty products, and sellers of a wide range of domestic merchandise. Some of the industry participants operate rural lifestyle retail stores, arts and crafts specialty outlets, and even provide used car auctions and salvage auction services.
4 Trends Likely to Define the Retail – Miscellaneous Industry’s Future
Consumers’ Willingness to Spend: The industry’s prospects are correlated with the purchasing power of consumers. No doubt, a reviving U.S. economy, a buoyant stock market, record personal savings, fresh initiative for a new coronavirus-aid package and positive news on the vaccine front are likely to drive consumer spending. U.S. retail sales grew for the sixth straight month in October, in spite of the fading of initial coronavirus-relief package. Analysts believe that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, and redirecting the same to retail. However, some market pundits cautioned that resurgence of coronavirus cases are compelling a few states to impose new restrictions. This could derail consumer spending activity. Notwithstanding the same, industry experts cited that companies have been resorting to location analytics and other data-driven tools to better engage with customers amid the ongoing crisis.
Focus on Boosting Portfolio & Market Reach: Most companies in the space are working on providing a wide assortment of products, enhancing online experience and adopting a favorable pricing strategy to boost sales. Initiatives such as building omni-channel operations, coming up with reward programs, and developing innovative products and services are worthy of mention. Of late, there has been an increase in demand for office supplies, personal care items, domestic merchandise products and fitness-related products, among others. Industry experts pointed that with people largely staying at home and maintaining social distancing, they are converting homes into “staycation spots” and engaging in “solitary recreational activities.” Notably, the companies are looking to fuel sales via targeted marketing.
Digitization Key to Growth: With the change in consumer shopping pattern and behavior, industry participants such as Tractor Supply Company (TSCO - Free Report) and Ulta Beauty, Inc. (ULTA - Free Report) have been playing dual in-store and online roles. In this respect, the industry players have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon amid the pandemic. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Markedly, the outbreak has rapidly changed the convenience of digitization into a necessity, and companies have been taking every step to capitalize on that demand. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, retailers need to replenish shelves with in-demand merchandise and ramp up investments in digitization this holiday season.
Focus on Margins: Companies in the industry are vying for a bigger share on attributes such as price, products and speed to market. They have been accelerating investments to strengthen digital ecosystem and boost shipping and delivery capabilities. While these endeavors drive sales, they entail high costs. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build pressure on margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. That said, sustained cost-containment measures are necessary to manage margins.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Retail – Miscellaneous industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #37, which places it in the top 15% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident on this group’s earnings growth potential. Since the beginning of July, the industry’s earnings estimate for 2020 has improved 70.6%. Notably, earnings estimates for 2021 have moved up 17.9% during the aforementioned period.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Vs Broader Market
The Zacks Retail – Miscellaneous industry has underperformed the broader Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has gained 12% over this period compared with the S&P 500’s rise of 18.1%. Meanwhile, the broader sector has rallied 40.8% in the said time frame.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 17.43X compared with the S&P 500’s 22.85X and the sector’s 30.88X.
Over the last five years, the industry has traded as high as 24.2X, as low as 11.54X and at the median of 15.97X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Retail – Miscellaneous Stocks to Keep a Close Eye On
MarineMax: The company’s strategic investments in high-margin businesses such as finance, insurance, brokerage, marina and service operations bode well. Markedly, the acquisitions of Northrop & Johnson in July this year and Fraser Yachts last year strengthened its position in the superyacht category. Recently, the company announced the acquisition of SkipperBud’s and its affiliate, Silver Seas Yachts. The buyout meaningfully enhances MarineMax’s presence in the Great Lakes region and the West Coast of the United States. Impressively, this recreational boat and yacht retailer has a trailing four-quarter earnings surprise of 263.6%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up by 57.6% in the past 60 days. We also note that shares of this Zacks Rank #1 (Strong Buy) company have surged 49.9% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HZO
The ODP Corporation: ODP Corporation commenced a multiyear restructuring plan “Maximize B2B” in May 2020 with the objective to realign the company’s operational focus to support its "business-to-business" solutions and IT services business units and improve costs. Through this initiative the company intends to accelerate growth on its B2B platform, lower dependency on its retail consumer operations, and maximize cost savings. Management expects this restructuring plan to be completed by the end of 2023. For this provider of business services and supplies, products, and technology solutions, the Zacks Consensus Estimate for its current-fiscal EPS has risen 31.1% over the past 30 days. The company has a trailing four-quarter earnings surprise of 3.1%, on average, and an estimated long-term earnings growth rate of 6.8%. We also note that shares of this Zacks Rank #1 company have increased 5.9% in the past six months.
Price and Consensus: ODP
DICK'S Sporting Goods: Favorable customer demand, a solid product portfolio and strength in the online platform have been contributing to the company’s upbeat performance. The company has been witnessing significant growth across its core categories, including hardlines, apparel and footwear. Notably, the company has been undertaking technology enhancements to provide customers seamless omni-channel experience. During the third quarter of fiscal 2020, e-commerce sales surged 95%, while as a percentage of total net sales, the same increased to 21% compared with 13% last year. Impressively, shares of this sporting goods retailer have gained approximately 47.6% in the past six months. The Zacks Consensus Estimate for the company’s current-fiscal EPS has moved up 46.9% in the past 30 days. This Zacks Rank #1 company has an estimated long-term earnings growth rate of 5.6%.
Price and Consensus: DKS
Five Below: The company’s digital strategy, expansion of supply chain network, enhancement of overall distribution capabilities and focus on merchandise assortment bode well. This specialty value retailer has been effectively meeting customer demand for products relevant in this pandemic-hit environment. Moreover, to make shopping convenient, it has expanded checkout capabilities. Markedly, the company is now offering same-day delivery service in roughly 300 stores. The company has a trailing four-quarter earnings surprise of 46.9%, on average, and an estimated long-term earnings growth rate of 21%. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up by 8.6% in the past seven days. We also note that shares of this Zacks Rank #2 (Buy) company have surged 45.2% in the past six months.
Price and Consensus: FIVE
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>